Kenneth Clarke, former Tory Chancellor and a contender for leadership of the party, travelled to Vietnam last week to support a highly controversial plan to build a $40 million cigarette manufacturing plant in the country, The Observer can reveal.

The project by British American Tobacco, where Clarke earns £100,000 a year as deputy chairman, has been fiercely attacked by health campaigners because Vietnam is suffering from an 'epidemic' of smoking-related diseases.

The country has one of the highest rates of tobacco consumption among males in the world and a report by the World Health Organisation claimed that as many as 10 per cent of Vietnam's 7.3 million population would die young from smoking-related diseases.

Clarke missed the state opening of parliament last week so he could be in Vietnam to attend BAT's annual South-east Asia regional board meeting.

BAT and Clarke have refused to disclose details of any meetings Clarke held with Vietnamese government officials and have been trying to keep the company's plans for the country under wraps, fearful of criticism from health campaigners.

But The Observer has dis covered that one of the key items on BAT's Vietnamese agenda is its attempts to secure government approval for a $40m production plant to process tobacco leaves with Vietnam's tobacco corporation Vinataba.

In 1999, Rothmans - now owned by BAT - had a proposal to build a plant rejected but the massive profits on offer for cigarette sales in Asia have forced BAT to try through a joint venture with a Vietnamese partner.

According to BAT's partner, the project is expected to run for 50 years and includes plans to develop more than 2,600 acres of tobacco plants across four provinces in Vietnam. BAT plans to produce more than 7,500 tonnes of processed tobacco for sale locally and for export.

Health officials in Vietnam have been desperately trying to crack down on smoking rates in the country, particularly among young boys, and campaigners fear if BAT gets a foothold in the country through a large manufacturing facility it would use its marketing and political power to block anti-smoking measures.

Clive Bates, director of anti-smoking group ASH, said: 'It is disgraceful that while Clarke is considering making a bid to lead the Tory party he is out fronting for BAT in one of the most controversial markets in the world. For BAT, there is a huge market opportunity - few Vietnamese women smoke, but with their advertising and marketing muscle, they could soon capture that market with disastrous long-term consequences for Vietnam's health and development.'

Pham Xuan Dai, a Vietnamese social scientist who is involved in Vietnam's battle against tobacco, said: 'The real problem now is that the giant tobacco companies are facing declining sales in Europe and America. Multinationals like British America Tobacco and Philip Morris are stepping up their activities in developing countries like Vietnam in the search for new markets.'

Clarke's latest trip to Vietnam is being used as ammunition by potential rivals in the Tory leadership race.

One of Clarke's Tory colleagues said: 'Only Ken could run for the Tory leadership while sitting in Hanoi peddling cigarettes to the Vietnamese. Any of the rest of us selling ciggies to the Third World would be torn apart by the press.'

The cigar-smoking Clarke has never hidden his enjoyment of smoking and was famously pictured as Tory Health Secretary smoking a large cigar and holding a pint of beer.

A spokesman for BAT admitted Clarke was 'made aware' of the joint venture proposals in Vietnam and attempts by BAT to get government support for the project, but said the former Chancellor had no involvement in the actual deal.